Union Bank Q4 result, profit at Rs108.22 crore

Close to Rs420-crore in tax write-back helped the state-run Union Bank of India on Monday to report a 12.5% increase in the net profit at Rs108.22 crore for the March quarter as its asset quality worsened leading to an over 50% spike in provisions.

For the full-year 2017, the Mimbai-based bank’s net profit more than halved to Rs556 crore, forcing it to not pay any dividends in its effort to conserve cash. Total provisions of the bank during the quarter jumped more than 50% to Rs2,444 crore from Rs1,564 crore a year ago as its asset quality worsened with gross NPA rising to 11.17% of gross advances during the reporting quarter from 8.70% year ago.

Net NPAs also rose to 6.57% from 5.25% year ago. Despite this, the bank could report a marginal profit as it could claim Rs418.3 crore in provisions made for taxes earlier in write-back. Total slippages for the quarter came down 52% to Rs2,951 crore, and the bank guided towards a similar reduction in the time ahead.

Outgoing chairman and managing director Arun Tiwari attributed the higher provisions to the hangover from the NPAs recognised in the past is resulting in a spike in overall provisions as its provisions for fresh slippages came down.

He said the bank is targeting to get the gross NPAs down to 10.75% by March 2018. Core net interest income for the reporting quarter grew 14% to Rs2,387 crore, while non-interest income grew 45% to Rs1,446 crore. It reported a 9.02% growth in advances and 10.4% growth in deposits during the fiscal, but does not expect a huge improvement on the both fronts, Tiwari told reporters here late evening.

The bank is targeting a 8-10% increase in advances and 6-8% in deposits for FY18. Net interest margin contracted marginally to 2.40% from 2.46% a year ago and it is aiming to get it over 2.25% in this financial year.

Tiwari said the economy has not been doing as good in the last three years, which has made the bank “prudent and wiser” in operating. He said the only changed which has come about is that promoters of defaulting firms have are negotiating their way out of troubled loans. The bank has an overall exposure of over Rs7,400 crore to the telecom sector, where RBI has raised some concerns, but Rs5,000 crore of that is to the state-run BSNL, he said.

The RBI found Rs 1,200 crore of assets in divergences in NPA recognition practices, he said, adding the bank’s overall exposure to a cement account causing trouble in the industry was only Rs5 crore which has become an NPA now. The bulk of fresh NPAs for the bank are coming from the steel sector, and Tiwari said it will take up to three quarters for an improvement.

He welcomed the NPA control moves announced by government and RBI over the weekend, saying it will help in fast pacing dud asset resolution. On bank consolidation, Tiwari said the bank is all for mergers but did not divulge his strategy. He said the bank is in the final stages of cementing a tie-up in the AMC space and will be announcing it soon.

On the dividend front, the bank said, “Considering the need for ploughing back profits for augmenting capital adequacy ratio” the board has decided not to recommend any dividend. The core common equity tier-I capital adequacy stood at 7.75% as against a regulatory requirement to have it above 6.75%.